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The Hyperbolic Forest Owner

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  • Ducla-Soares, Maria M.
  • Costa-Duarte, Clara
  • Cunha-e-Sa, Maria A.
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    Abstract

    This paper examines the implications of quasi-hyperbolic inter-temporal preferences to the Faustman model. The use of decreasing discount rates leads to dynamically inconsistent behavior. To solve this problem a two-stages optimization decision model is developed. The resulting actual cutting time will be anticipated compared to the Faustman optimal cutting time. If, alternatively, the equivalent constant rate of discount is the empirically observed discount rate, then the optimal cutting time is the same, but the present value of profits for the hyperbolic forest owner is always higher than the one resulting from the equivalent constant discount rate. All these results apply to both the single and the multiple rotation problems.

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    File URL: http://fesrvsd.fe.unl.pt/WPFEUNL/WP2001/wp405.pdf
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    Bibliographic Info

    Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp405.

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    Length: 25 pages
    Date of creation: 2001
    Date of revision:
    Handle: RePEc:unl:unlfep:wp405

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    Related research

    Keywords: Hyperbolic discounting; time preference; dynamic inconsistency; Faustman model; optimal rotation;

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    1. Charles M. Harvey, 1986. "Value Functions for Infinite-Period Planning," Management Science, INFORMS, vol. 32(9), pages 1123-1139, September.
    2. Robert J. Barro, 1997. "Myopia and Inconsistency in the Neoclassical Growth Model," NBER Working Papers 6317, National Bureau of Economic Research, Inc.
    3. Harris, Christopher & Laibson, David, 2001. "Dynamic Choices of Hyperbolic Consumers," Econometrica, Econometric Society, vol. 69(4), pages 935-57, July.
    4. Cropper, Maureen L & Aydede, Sema K & Portney, Paul R, 1994. "Preferences for Life Saving Programs: How the Public Discounts Time and Age," Journal of Risk and Uncertainty, Springer, vol. 8(3), pages 243-65, May.
    5. David I. Laibson, 1996. "Hyperbolic Discount Functions, Undersaving, and Savings Policy," NBER Working Papers 5635, National Bureau of Economic Research, Inc.
    6. Olsen, Jan Abel, 1993. "On what basis should health be discounted?," Journal of Health Economics, Elsevier, vol. 12(1), pages 39-53, April.
    7. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
    8. George Loewenstein & Richard H Thaler, 2003. "Anomalies: Intertemporal Choice," Levine's Working Paper Archive 618897000000000784, David K. Levine.
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